China’s Natural Gas Industrial Policy and

Reform LIU Hong

Deputy Director General of Oil and Gas Department 15th November 2017

CONTENT

I. The Status Quo of Natural Gas

Industry in China

II. The Prospects of natural gas

industry development in China

III. Issues and suggestions

U.S. 7492

Russia 5794

Iran, 2024 Qatar 1812

Canada 1520 China 1369

Others 15489

Natural Gas Production in 2016

I. The Status Quo of Natural Gas Industry in China

U.S. 22%

Russia 11%

2058

Iran 6% Japan

3% Saudi Arabia

3%

Others 49%

Natural Gas consumption in 2016

I. The Status Quo of Natural Gas Industry in China

6.4

13.3

62

18.3

Proportions of primary energy consumption in 2016

天然气

非化石能源

煤炭

石油

Non-fossil energy

Coal

I. The Status Quo of Natural Gas Industry in China

Natural Gas

Petroleum

73.5

72.6

25.4

37.1

Proportions of Natural Gas Consumption in 2016 (in billion Cubic meter)

城镇燃气

工业燃料

化工用气

发电用气

I. The Status Quo of Natural Gas Industry in China

Domgas

Fuel for industry

For chemical

For thermal power plant

561 705

813 895

1069

1305 1463

1635

1827 1931

2058

2300

20.1

25.7

15.3

10.1

19.4 22.1

12.1 11.8 11.7

5.7 6.6

11.8

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

0

500

1000

1500

2000

2500

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E

消费量（亿方/年） 增长率(%)

Growth of Natural Gas Consumption

I. The Status Quo of Natural Gas Industry in China

Growth rate(%) Consumption (0.1b/yr)

Development of Natural Gas infrastructure

I. The Status Quo of Natural Gas Industry in China

Summary

1. China is the sixth largest producer of natural gas and the third largest consumer in the world. 2. China's natural gas consumption accounts for a low proportion of primary energy. 3. China has built a more complete system of natural gas industry. 4. China's natural gas consumption will continue to grow rapidly.

Natural gas plan in 13th Five-Year development goals

Index 2015 2020 Average annual growth rate

Total proved reserves（Tcm） 13.0 16 4.3%

Production（bcm/yr） 135 207 8.9%

Natural gas accounts for the proportion of primary energy consumption（%） 5.9 8.3～10 -

Usage percentage of natural gas in urban population（%） 42.8 57 -

Pipeline mileage（ten thousand km） 6.4 10.4 10.2%

Primary capacity of pipeline transmission （bcm） 280 400 7.4%

Working capacity of underground gas storage（bcm） 5.5 14.8 21.9%

II. The Prospects of natural gas industry development in China

Implement the utilization of natural gas 13 ministries issued Opinions about accelerating the implement of natural gas utilization in June 2017.

Urban gas To promote clean heating

in winter in northern China To improve the

utilization of natural gas of urban residents rapidly Break through the use of

natural gas in "the last kilometer"

Fuel for industry To transfer industrial

boilers from coal to gas in “ the high polluting fuel combustion forbidden zone” Substitution and

utilization of natural gas in key industries such as glass, ceramics, building materials, mechanical and electrical, textile, etc.

Thermal power plant Vigorously develop natural gas distributed energy To encourage the development of natural gas peak shaving power station To develop natural gas cogeneration orderly

Transportation

To speed up the development of natural gas vehicles and vessels To speed up the construction of gas filling stations

Clean heating in northern China

The prevention

of air pollution

Integration and

development of renewable

energy

Vehicle and

vessel

II. The Prospects of natural gas industry development in China

Reform in the field of oil and gas

Goals of reform：

More——Diversification and interconnection

Faster——To speed up construction

Better——Survival of the fittest

Saving——To improve the efficiency and reduce cost

Methods：

Open

Cooperation

interconnection

II. The Prospects of natural gas industry development in China

The practice of reform 1. Exploration and development of shale gas and coal-bed methane : mining rights bidding

2 . The conventional oil and gas exploration and development pilot in Xinjiang area

3 . To encourage international cooperation in oil and gas industry: The guidance of foreign investment in industry

4. Market reform of natural gas pricing

5. To open and encourage natural gas trade, and to set up trading center

II. The Prospects of natural gas industry development in China

Issues of concern in all respects 1. Growth of natural gas consumption is too fast: Supply security

2. Growth of natural gas consumption is much lower than expected: Industrial benefits

3. Whether environmental policy can continue to be implemented: The steady growth of natural gas consumption

4. Changes in policies of pricing: Investment benefits of infrastructure

5. Fluctuations in global natural gas market: Options between long term contracts and spot market

6. Global activities of natural gas exploration and development: Balance between supply and demand

III. Issues and suggestions

Learning Experiences from U.S. 1. Integrity in the industry chain of upstream,

midstream and downstream

2. Transparence of market information

3. Open access and competition system

4. unified infrastructure

5. Flexible and efficient consumption system

6. Relatively low cost and price

7. Mature system and framework of regulation

III. Issues and suggestions

Advices for cooperation

1. The communication mechanism between governments

2. Platform for cooperation among enterprises: The alliance of natural gas

3. Communications in thematic meetings

III. Issues and suggestions

China's natural gas industry has a strong momentum of development, and the desire for natural gas cooperation between China and the U.S. is strong. I believe that the future results will be good. The quality of the process depends on our learning ability and efforts to find win-win cooperation.

Conclusion：

Thank you！